Business ownership is a critical avenue for entrepreneurs of color to close the racial wealth gap. Increasing entrepreneurship among people of color can create income for both the entrepreneurs themselves and the people of color who work at the businesses. Unfortunately, despite federal policies to prevent discrimination against minorities and low- and moderate-income borrowers, entrepreneurs of color continue to experience higher loan denial probabilities and pay higher interest rates than white-owned businesses, even after controlling for differences in creditworthiness.

However, there are some unique cross-sector partnerships to address these barriers, empowering entrepreneurs of color by helping raise awareness of their presence in the larger business community, helping increase their skills and network, and increasing access to debt and equity capital available to them through innovative models. Below are examples:

Stanford Latino Entrepreneurship Initiative (SLEI)

SLEI is a collaboration between Stanford University and the Latino Business Action Network (LBAN), a nonprofit entrepreneurship organization based in Palo Alto, California with a vision to strengthen the United States by improving the lives of Latinos through entrepreneurship education and a support network. SLEI explores and expands knowledge of the Latino entrepreneurship segment in the economy through research, knowledge dissemination, and facilitated collaboration. The joint effort aims to grow the current database of more than 1.3 million U.S. Latino-owned companies and survey a panel of more than 5,000 independent companies as well as support the advancement of knowledge and discourse by generating significant research and broadly disseminating its findings. In addition to research, LBAN sponsors an immersive SLEI Education Scaling program, which is facilitated by the Stanford University’s Global School of Business. The program provides business owners with education, enhanced networks, personal mentorship, and a better understanding of how to access capital to scale their businesses. It’s an investment in Latino business owners who generate more than $1 million in annual revenue or have raised at least $500,000 of external funding. The program has more than 350 alumni from 25 states and Puerto Rico who collectively generate over $1.2 billion in annual revenue.

Detroit’s Entrepreneurs of Color Fund

Launched in 2015, the Entrepreneurs of Color Fund provides loan capital to Detroit’s entrepreneurs of color and to neighborhood-based small businesses who primarily hire local residents. The Fund is a successful example of a city-business-nonprofit partnership to support minority-owned businesses. It is a partnership between JP Morgan Chase, the W.K Kellogg Foundation, the Ralph C. Wilson Jr. Foundation, Fifth Third Bank, the Kresge Foundation, and the Detroit Development Fund. Detroit Development Fund, the nonprofit that manages the fund, has channeled $4.5 million to 43 minority-owned small businesses, of which 53% are owned by women. In 2017, during which JP Morgan Chase, the W.K. Kellogg Foundation, the Ralph C. Wilson Jr. Foundation, Fifth Third Bank, the Kresge Foundation, and others announced significant new investments in Detroit’s Entrepreneurs of Color Fund (EOCF), tripling the fund’s value from $6 million to $18 million. That funding, combined with technical assistance, can provide a ladder that allows a business to graduate to being loan eligible by major financial institutions.  Of the 43 businesses funded, none would have qualified for traditional bank lending. The University of Michigan’s Detroit Neighborhood Entrepreneurs project and other providers have contributed to the zero percent default rate of the program by providing technical assistance to entrepreneurs to help them succeed.

Oakland, California: Kiva Loan Fund

In 2016, the City of Oakland partnered with Kiva, a nonprofit microfinance company, to facilitate local residents in providing zero-percent interest crowdfunded loans to hundreds of area small business with a social mission and business owners who historically have been excluded from mainstream lending. Oakland residents browse through business owners’ profiles and can lend $25 or more towards a borrower’s full loan request. Once residents have funded 100 percent of the requested loan amount, the borrower can access the capital. The City of Oakland, OBDC Small Business Finance, Capital One, and the Miller Family Foundation match every dollar that individuals lend to an Oakland borrower, up to $225,000. Kiva has closed more than 530 zero-percent interest loans, of which 90 percent supported businesses owned by people of color, and 70 percent were owned specifically by women of color. The City of Long Beach has adopted a similar model, partnering with Kiva and the Los Angeles Local Initiative Support Corporation (LA LISC) to provide zero-percent interest crowdfunded loans with up to a 36-month repayment period. Borrowers can obtain loans between $500 and $10,000 through the program and LA LISC will match loan contributions made to Long Beach.

Prosper Portland Venture Capital Funds

The Portland Elevate Inclusive Fund and the Portland Elevate Capital Fund are examples of a private-public partnership to create a unique equity solution that increase the available capital for minority-owned and women-owned businesses. Prosper Portland invested in creating a fund for startups to fill the most critical gap in funding for growing companies, increasing the job creation prospects for startup firms and the pipeline of viable companies for later stage investors. Prosper Portland and Multnomah County each individually committed $500,000 and the State of Oregon committed $250,000 to the Elevate Inclusive Fund to encourage investors to provide early seed investment and series A stage type investments in the Capital Fund. The fund provides $25,000 to $75,000 in early seed investments from its Inclusive Fund and up to $500,000 in seed and series A stage type investments from the Capital Fund. Elevate Capital, a Pacific Northwest-based venture firm that invests in early-stage underrepresented entrepreneurs, including women and minorities that include communities of color, veterans, and entrepreneurs located in underserved regions, was selected by Prosper Portland to manage the money. Thus far it has made investments in its first cohort of six women- and minority-led startups.